BUSINESS LAW

SALE OF GOODS
Originally Contract Act covered all aspects of business relations like sale of
goods and services, leasing of land and building, transportation of goods,
lending etc. Later on the activities in each of these fields became large that
specialised law was enacted for different fields of contracts. These defined
the lessor and lesse, pawnor and pawnee, buyer and seller, principal and
agent relationships, their respective rights and obligations. The law relating
to the buyer and seller was first enacted in England in 1893 which was later
adopted in various countries. In India, the chapter in the Contract Act relating
to sale of goods was deleted and a new Indian Sale of Goods Act was enacted
in 1930.
As in a valid Contract, in Sale of goods also has all the ingredients of a valid
contract- Offer and acceptance, two parties having capacity to contract,
lawful consideration, free consent, consensus ad idem. In addition three
important elements distinguish the contract of sale. They are: 1.subject
matter of contract of sale; 2. Transfer of property; and 3. Price consideration.
Amit purchases a Nokia cell phone from Cells and Cells Co. for Rs. 15,000.
Arun places an order for a dining table and 4 chairs of a particular design
from the catalogue of Furniture People Pvt. Co for 20,000 payable on delivery
in 10 days at Aruns residence.
Amrita places an order for a necklace to be made and supplied in 15 days
and pays an advance of 25% of the cost and agrees to pay the balance in 10
monthly installments by 5th of every month.
The above are examples of contracts of sale. It may be seen in all these
cases, the subject matter of contract and price considerations are clear.
Ram agrees to buy one bag of rice every month for 12 months at a price from
Raj & Co and to pay for the rice on delivery.
In the first case, transfer of property takes place in the shop itself when the
phone and money are exchanged. The Cells and Cells Co was the owner of
the Nokia Cell till the moment Amit chose that piece and paid cash. The
ownership transferred to Amit the moment he had paid the cash.
In the other case, the contracts are executory in nature for the transfer of
properties is to take place at a certain future date. These are agreements to
sell. It may be seen that the rights and obligations vary in each of the above
cases and the incidence of transfer of property varies in time
It should be understood that a property can be transferred only by the owner.
A person who does not own the property or title of ownership to the property,
he cannot transfer it to another.
Similarly, a person cannot buy his own property nor sell to himself.
The Sale of Goods Act
The Sale of goods is a Contract. It is a contract between the seller and the
buyer.
The seller transfers or agrees to transfer the ownership of the goods to the buyer
for a price.
It may be absolute or conditional.
It includes actual sale or agreement to sell.

Dr. M Koteeswaran

MBA I- 2012- Hand out 3

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BUSINESS LAW
SALE OF GOODS
Sale is an executed contract where the goods have passed from the seller to
the buyer.
An agreement to sell is executory contract.
The transfer of goods is to take place at a future time.

Sale and Agreement to sell differences

2
3.

Basis
Transfer
ownership
Nature
Conveyance

4.

Transfer of risk

5.

Rights
of
seller
against
buyers
breach
Rights
of
buyer
against
sellers
breach
Effect of insolvency
of
seller
having
possession
Effect of insolvency
of
buyer
before
paying the price.

6.
7.
8.

Sale
of Immediate

Agreement to Sell
At a future time.

Executed
Right to enjoy the goods
against the whole world
fers in rein
Immediate, even if in
possession of seller

Executory
Pure and simple contract.
Creates rights against the
person. fers in personam
No risk till transfer of title,
even if in possession of
buyer
Sue the buyer for price Sue the buyer for damages
even if the goods are in even if the goods are in
sellers possession.
Buyers possession.
Sue
the
seller
for Sue the seller for damages
damages and the third only.
party for the goods.
Since the buyer is the
lawful owner, he can
claim from the receiver.
Seller must deliver the Seller can refuse to deliver
goods to the receiver, as unless paid in full.
ownership
has
transferred.

Formalities: Modes of sale of goods

1. Immediate delivery of the goods.
2. Immediate payment of price but delivery at a future date.
3. Immediate delivery of goods and payment of price.
4. Both delivery and payment in installments.
5. Both delivery and payment at a future date.
Goods
Every kind of movable property is a good.
Example
Stocks and shares, goodwill, trademark, copy right, patent, growing crops,
grass.
Things attached to or forming part of land which are agreed to be severed
before sale.

Dr. M Koteeswaran

MBA I- 2012- Hand out 3

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BUSINESS LAW
SALE OF GOODS
Money and actionable claims are not goods.
Goods a) Existing
i) Specific
ii) Generic
iii) Ascertained
iv) Unascertained
b) Future
c) Contingent
Perishing of Goods
A Contract for sale of specific goods will be void, if such goods without the
knowledge of the seller have become so damaged as no longer to answer to
their description in the contract.
1. Cement spoiled by water.
2. Sugar became sherbet.
3. The goods which have ceased to exist in the commercial sense.
Where the ship carrying the goods for delivery under agreement to
sell, sinks the contract is void.
Example
A sold to B specific goods which he believed was on their way from
England. The ship sinks the day before the bargain. Hence the contract
is void.
Where a seller is irretrievably deprived of the goods as when they have
been stolen, or lawfully requisitioned by the government or have been
lost in some other way and cannot be traced.
Where there is an agreement to sell, the goods
Perish or are damaged without any fault of the seller or the buyer.
Subsequent to the agreement but before the risk passes to the buyer,
the agreement becomes void.
Conditions
1. There must be an agreement to sell.
2. The loss must be specific.
3.
The loss must not have been caused by any fault or wrongful
act by the seller or buyer.
4. The goods must perish before the risk passes to the buyer.
In such cases of perishing of goods, the contract becomes void only at the
time of
Perishing and not before.
If by agreement, the price was payable by the buyer or at a date prior
to the destruction of the goods ,the seller can sue for the price if
unpaid and if paid, the buyer cannot recover
Blakely Vs Muller
Price
No sale can take place without a price as the money consideration.
The price may be expressly stated in the contract.
The contract may provide for the manner in which the price is to be
fixed by the contracting parties and not by a third party.
If a price is not expressed or provided, it may be determined in the
course of dealing between the parties.
Where nothing is said about price, the market price or reasonable price
will apply.

Dr. M Koteeswaran

MBA I- 2012- Hand out 3

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BUSINESS LAW
SALE OF GOODS
The price may be left to a third party to fix any valuation provided he
agrees to perform this duty.
If he fails, the agreement becomes void.
A buyer must pay a reasonable price for goods bought.
Payment shall be in the currency unless there is an express or implied
to the contrary in the contract.
Where security deposit or earnest money is paid in advance by the
buyer for due performance of his part of the contract,
If the sale goes off through the sellers fault,
He must refund the deposit money to the buyer.
Right of parties to sue
1. X agrees to sell 100 bags of sugar to Y in 3 installments of 30, 30 & 40.
X and Y agree that Z will fix the price.
X delivers 30 bags as scheduled accepts delivery.
(a) X prevents Z in fixing the price.
Agreement to sell becomes void .Y can sue for damages.
Y should pay reasonable price.
(b) Z is prevented by the fault of Y in fixing the price.
Agreement to sell becomes void. X can sue.
Y should pay reasonable
price.
(c) Z refuses to fix the price.
Agreement to sell becomes void .Y must pay reasonable price.
CONDITIONS AND WARRANTIES
A stipulation in a contract may be condition or warranty.
A condition is a stipulation which is essential to the main purpose of
the contract.
The breach of which gives the aggrieved party a right to terminate the
contract.
In Baldry Vs Marshall, X wanted a car suitable for touring purposes.
Y suggested a car for the purpose and sold to X. X found it unsuitable.
Suitability of car for touring was a CONDITION of contract. Hence X could
reject and get refund.
A warranty is a stipulation which is collateral to the main purpose of
the contract and breach of which gives the aggrieved party, the power
to claim damages but not to reject the goods and to terminate the
contract.
CONDITION
WARRANTY

1. Stipulation essential to the main It is collateral

purpose
Not so
2. Sale cannot be fulfilled without
fulfilling the condition
Aggrieved party can claim
3. The aggrieved party can repudiate damages
the contract on breach of condition
and also claim damages.
Not so
4. Can be treated as warranty also
Caveat Emptor
It means let the buyer beware.
It is not the sellers duty to point out the defects in the goods, he is selling.
The goods come with the risk

Dr. M Koteeswaran

MBA I- 2012- Hand out 3

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BUSINESS LAW
SALE OF GOODS
1. Buyer should take care.
If the buyer depends on his own skill and knowledge and the goods turn
out to be defective, it is his own fault. This is caveat emptor.
Where the buyer makes it known to the seller that he depends on the sellers
skill, knowledge and judgment and buys them in that basis, caveat emptor
will not apply. The contract will be subject to the condition or warranty.
Contract of sale is consensual.
It can be absolute or conditional, as parties decide.
If a seller asserts a fact of which the buyer is ignorant, such representation
or statement becomes a stipulation.
A mere commendation by the seller of the goods will not amount to
stipulation and hence does not create a right to action.
If stipulation forms the basis of the contract essential to the main
purpose of the contract, it is a condition.
If the stipulation is not essential to the main purpose of the contract, it
is collateral to the main purpose of the contract, it is warranty.
Breach
If the condition is breached, the aggrieved party can terminate the
contract.
In case of warranty, can only claim damages, not terminate the
contract.
If the buyer likes to retain the goods in case of breach of condition, he
can only claim damages as though it is a breach of warranty.
Waiver of condition
The buyer can waive the condition.
He may treat the breach of condition as breach of warranty.
Three cases of waiver.
By Voluntary waiver
By Acceptance
By impossibility
1. The buyer can waive the condition.
2. He may treat the breach of condition as breach of warranty.
1. By Voluntary waiver
A agrees to supply B First quality rice at Rs 720 per bag.
Supplies Second quality at Rs 670 per bag.
.
B can reject as breach of condition
B can accept as breach of warranty and claim damages at Rs 50/ bag

By Acceptance
After accepting the goods, buyer cannot reject.
Acceptance comes into force when:
Buyer informs seller of acceptance
Buyer resells the goods
Buyer retains goods for reasonable time
3. By impossibility
Estoppel

Dr. M Koteeswaran

MBA I- 2012- Hand out 3

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BUSINESS LAW
SALE OF GOODS
Where the contract is indivisible and the buyer has accepted the goods
or part thereof.
The breach of condition is treated as breach of warranty. Buyer can claim
damages.
Stipulation to Time factor
If the time is specified for delivery of goods or for doing any other act,
delivery must be made or act done at the specified time. If not done,
the other party can repudiate the contract.
Where as time fixed for payment is not deemed to be essence of the
contract, unless the parties intended that it should be so.
Failure to pay on the date fixed does not entitle the seller to repudiate
the contract.
1. But he may withhold delivery till price is paid.
2. Resell if the buyer does not pay within a reasonable time.
3. When the buyer pays after the due date but before the resale, the seller
shall sell the goods to the buyer.

Implied conditions
1. As to title
2. Sale by description
3. Sale by sample
4. Sale by sample and description
5. Quality or fitness
6. Merchantability
7. Wholesomeness
8. By custom
As to Title
Every sale implies transfer of title to goods from seller to buyer. If the
title is defective, the buyer can reject the goods.
1. In Rowland and Divall :
Rowland bought a car from Divall and sold to Railsdon. Police took
away the car from Railsdon as it was a stolen car sold to Divall.
Rowland refunded Railsdon and sued Divall for damages. It was held
the seller did not have the right to possession and consequently cannot
give it to the buyer. . There can be no sale at all of goods which seller
has no right to sell . The principle is: No one can transfer a better title
than he himself has. So , Rowland was entitled to recover the full price
from Divall.
2. NEM General Insurance Co. Vs. Jones
The NEM General Insurance Co had settled an insurance claim against
theft of car owned by Ms. Hopkin whose Ford Fiesta was stolen in
Feb.1983. In Sept 1983, the thieves were convicted. The car was finally
traced at Mr.Jones place who was the 6 th buyer of the stolen car. The
NEM General Insurance Co sued Jones. Jones maintained that he had
no idea of the theft and he bought in good faith from the previous
owner. Held, none can acquire a title to a property without a lawful
ownership nor can transfer the title.

Dr. M Koteeswaran

MBA I- 2012- Hand out 3

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BUSINESS LAW
SALE OF GOODS
Sale by description
When goods are sold by description, the implied condition is that they
shall correspond to the description.
The goods sold should be described by the seller.
The buyer might not have seen at all but may buy on the basis of
description by the seller.
Verley Vs. Whipp
Whipp agreed to buy a reaping machine from Verley who had described that
the machine was hardly a year old and hardly used. On receipt of the
machine Whipp found that the machine was very old, extensively used and
repaired. He returned the machine and sued Verley. It was held that the
term sale of goods by descriptionmust apply to all cases where the purchase
has not seen the goods, but relying on the description alone. Hence, Whipp
was entitled to recover the cost..
Where the buyer has seen the goods but buys only on the basis of
description given by the seller.
A buyer bought certain goods which the seller described as dating
from 17th century! Actually, they belonged to 18th century.
The buyer is entitled to reject the goods as goods did not correspond to
the sellers description.
Where method of packing has been described
X purchased 5000 tins of canned fruit from Y.
The condition of the purchase was that the tins to be packed in boxes of 50
tins of each.
The seller packed 25 tins/box.
X rejected because the goods were not packed as per description.
If the goods do NOT correspond with the description but are FIT for
buyers purpose, even then the buyer may reject.
The seller cannot argue that the goods serve the purpose of the buyer.
Arcos VS Ramaason & sons
CONDITION AS TO SAMPLE
Goods are supplied as per sample
Bulk shall correspond to sample in quality
Buyer shall have reasonable opportunity to compare with
sample
Goods shall be free from defect
Buyer can retain what corresponds to sample and reject the rest, where items
are separable.
X sold certain worsted woolen material for coat making to Y as per sample.
But it was found that the material had some latent defects that it cannot be
used as coating material at all. Even though the supply met with the
approved sample, the latent defect could not be discovered by making
reasonable examinations. Hence buyer could reject.
CONDITION AS TO SAMPLE AND DESCRIPTION
Sale of Goods is both as per sample and description
- Goods shall correspond to sample in quality
- and to the description
Buyer contracts for imported refined oil. The goods corresponds to sample
but mixed with local oil. Buyer can reject.
CONDITION AS TO FITNESS OR QUALITY

Dr. M Koteeswaran

MBA I- 2012- Hand out 3

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BUSINESS LAW
SALE OF GOODS
Buyer requires goods for particular purpose and informs the seller
Buyer relies on the skill of the seller.
Grant Vs. Australian Knitting Mills Ltd.
Dr Grant contracted skin disease after using woolen underpants which was
caused by chemical irritant. Held, Merchantable means that the article sold if
meant for one particular use in the ordinary course, is fit for that use.
Merchantable does not mean that the thing is saleable in the market simply
because it looks alright; it is not merchantable in that event if it has defects
unfitting it for its only proper use. So the retailer who sold the woolen under
garments was liable to Dr. Grant and not the manufacturer as there was no
privity of contract between him and the manufacturer.
Priest asked for hot water bottle. Chemist showed a bottle and said not for
boiling water but for hot water. On use it burst.
CONDITION AS TO MERCHANTABILITY
Seller must be a dealer in goods of that description
Buyer must not have any opportunity of examining the goods.
Morelli Vs Fitch
Case of Ginger bottle
CONDITION IMPLIED BY CUSTOM
CONDITION AS to WHOLESOMENESS
Case of Frost Vs Avlesbury Dairy
Frosts wife died after consuming milk from Avlebury Dairy which
contained typhoid germs.
Jackson Vs. Weston & sons
A grocer sold tinned poisonous salmon,which resulted in death of
many. Held the grocer was responsible for damages, because of breach
of condition of wholesomeness.
SALE BY NON OWNERS
1. Mercantile agent
2. Estoppel
3. Joint Owner
4. Voidable contract
5. Seller in possession after sale
6. Buyer in possession after sale
7. Unpaid seller
8. Finder of goods
9. Pledgee
10.Official Receiver
Sale by Non Owners
Mercantile Agent
Oppenheimer Vs. Attenborough
Agent fraudulently pledges diamonds . Principal bound by actions of
agent.
Folkes Vs. King
Agent sells a car below the authorised price and misappropriates the sale
proceeds. Buyer gets a clean title.
Sale by Non Owners

Dr. M Koteeswaran

MBA I- 2012- Hand out 3

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BUSINESS LAW
SALE OF GOODS
2. Joint Owner
Sale by one of several joint owners
Must have sole possession
Must have consent from all other joint owners for sale
Browning Vs. Shelley
Browning & Tennyson co-own a TV in possession of Browning. Tennyson
secretly sells it to Shelley.
Shelley cannot get clean title as TV was not in sole possession of Tennyson
and was sold without consent of Browning
Sale by Non Owners
3. Person in possession of goods under voidable contract
A person may possess some goods by fraud or coercion or undue
influence and sell it.
The buyer gets a clean title if he buys it before the action of the seller is
held voidable.
Sale by Non Owners
4. Seller in possession of goods after sale
Seller must be in possession of goods ALREADY sold BUT not on behalf of
the buyer
Seller may sell to another. Valid
Sale by Non Owners
5. Buyer in possession of goods
After buying or agreeing to buy some goods, the buyer takes possession of
the goods and before payment of the price he sells to another who is not
aware of the status of the title to goods, becomes a bonafide buyer with
valid title transferred.
Sale by Non Owners
6. Unpaid seller
A seller who has sold his goods to a buyer and has not been paid for and
the goods are under his control or in transit can RESELL the same goods to
another with clean title even without notice to the original buyer.
Sale by Non Owners
Finder of lost goods can sell the goods if
True owner cannot be traced
The true owner refuses to pay for the expenses incurred by the finder
The goods are likely to perish or lose value
The expenses incurred are two thirds value of the goods.
Sale by Non Owners
8. Pawnee (pledgee)
Can sell after giving notice to the pawner (pledger)
Sale by Non Owners
9. Official Assignee Or Receiver Or Liquidator
Can sell as per court order

Dr. M Koteeswaran

MBA I- 2012- Hand out 3

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